MPC waiting for rebound in investments

MPC statement lacking evaluation of prospects for investments

As we expected, the Monetary Policy Council has left interest rates unchanged today (the reference rate amounts to 1.50%). The MPC maintained the view that "given the available data and forecasts, the current level of interest rates is conducive to keeping the Polish economy on the sustainable growth path and maintaining macroeconomic balance”. The Council indicated in its statement that in the following quarters inflation would remain moderate. In its view, in the coming quarters gradual rise in domestic inflationary pressure stemming from improving domestic economic conditions will be accompanied by a decline in import price growth due to the expected stabilization of energy commodity prices and low inflationary pressure abroad. Consequently, in the Council's opinion "the risk of inflation persistently running above the target in the medium term is limited”. However, the MPC has not presented its evaluation of prospects for investments in the statement after the meeting. This is quite surprising given the disappointing data on GDP structure in Q2 published last week which indicated no signs of improvement in investments despite high degree of capacity utilization and fast growth of internal and external demand (see MACROpulse of 31/8/2017).

NBP Governor: lower unemployment in Poland is diffucult to imagine

At the conference after the meeting, the NBP Governor, A. Glapiński, repeated the view presented earlier that in the case of materialization of the macroeocnomic scenario outlined in the July inflation projection (see MACROpulse of 5/7/2017), NBP interest rates would not change until the end of 2018. In his view there is no reason today to discuss change in interest rates. He believes that in mid-2018 the discussion on interest rates at MPC meetings will be "more resolute” and motions concerning rate hikes may then appear.

Assessing the Polish labour market outlook, the NBP Governor stated that "lower unemployment is difficult to imagine”. However, in his view, due to the inflow of employees from Ukraine, "the problem of labour shortage is receding” which signals a limited risk of excessive wage pressure. Present at the conference Council member J. Kropiwnicki also pointed to the absence of wage spiral and the resulting limited inflationary risk.

According to A. Glapiński, investments "started off” although the MPC was concerned about a lower-than-expected pace of the rebound in investment demand ("we are waiting from month to month for investments to start in full swing”). He maintained his view that increase in public investments (of local governments in particular) and private investments co-financed with EU funds in the coming quarters would accelerate gross fixed capital formation.

Rate hike is still distant

The above-quoted remarks of Council members indicate that MPC bias in monetary policy has not substantially changed compared to the one presented after the July meeting. At the same time, they support our forecast of NBP rates, in which, given a moderate wage pressure and inflation staying below target, the MPC will leave interest rates unchanged until November 2018. In the next MACROmap we will present our latest macroeconomic scenario for 2017-2018.

In our view, the statement after the MPC meeting and remarks of the NBP Governor are neutral for PLN and bond yields.